Global stock markets retreat and bonds wilt as oil climbs

Global share markets slipped on Monday as fresh drone attacks in the Gulf pushed oil prices and bond yields higher, stoking inflation ‌worries in a week when the tech bull run will be tested by earnings from Nvidia.

Meanwhile, the vital Strait of Hormuz remains ‌closed to all but a trickle of shipping as Tehran tries to formalise its control of the waterway that during normal times carries 20% of the world’s oil and gas trade.

“Right now, markets are panicking as they are pricing the possibility that the Strait of Hormuz remains closed,” said George Lagarias, chief economist at Forvis Mazars. Brent was trading up ‌about 1.2% at about $110.55 a barrel, while US crude climbed 1.4% to $102.48. Crucially, futures for September traded above $100 and December hit a contract high as markets braced for protracted shortages.

G7 finance ministers are gathering in Paris on Monday to discuss the Strait of Hormuz and critical raw material supplies, though geopolitical differences threaten to test the group’s cohesion.

Global bond markets were hit again on Monday by concerns that energy costs would stay high and thus continue to drive inflation and stunt growth. Yields on US 10-year notes hit a 15-month top of 4.631%, having surged 23 basis points last week. Yields on 30-year bonds reached 5.159% after jumping 18 basis points last week.

Japan’s 10-year yield hit a peak not seen since 1996 as the government proposed to issue fresh debt to fund a planned extra budget to cushion the economic blow ​from the Iran war. Germany’s 10-year bond yield rose to a level not seen in 15 years.

“As long as this is not a credit ‌event, and we have no evidence to call this a credit event, then beyond the normal volatility seen for a market at all-time highs, I would be surprised if it causes a big rout in equities as well,” Forvis Mazars’ Lagarias said.

“It can be an excuse for some investors to take some money off the table, but I’d be surprised if we saw a proper correction on the back of this bond volatility.” STOCKS MOSTLY LOWER Rising yields push up borrowing costs and mean a higher discount for future company earnings, challenging stock valuations. European stocks fell 0.4%. Major markets in Frankfurt and London both edged up, while those in Paris fell 0.9%. S&P 500 futures fell 0.5% and Nasdaq futures lost 0.5%. Overnight, ​Japan’s Nikkei eased 1%, ‌having fallen 2% last week from record highs. South Korean stocks rose 0.3%, as Samsung Electronics gained almost 4% after a court issued a partial injunction against ‌a union strike. MSCI’s broadest index of Asia-Pacific shares outside Japan lost 0.6%. Chinese blue chips lost 0.5%, as economic data disappointed.

The AI trade will be tested by earnings from Nvidia that are due on Wednesday, with expectations sky-high for the world’s most valuable company.

Nvidia shares are up 36% since a March low, while ‌the Philadelphia SE semiconductor index ‌has surged more than 60%, amid voracious demand for chips as tech companies spend massively to build AI-related infrastructure.

Also due this week are results from a host of retailers, including Walmart, which will provide an insight into how ‌consumers are faring with high energy prices.

In forex markets, risk aversion has tended to benefit the greenback as the world’s most liquid currency. The US is also a net energy exporter, giving it a relative advantage over Europe and much of Asia. The euro was little changed at $1.162925 after losing 1.4% last week. The pound was up slightly at $1.33540, having dived 2.3% last week as political instability in Britain added to already intense ​pressure on the gilt market. The dollar held firm against the yen at 158.94, with only the threat of Japanese intervention preventing another speculative assault on the 160.00 chart barrier. In commodity markets, gold was near flat at $4,538.19 an ounce , having drawn little support so far as a safe haven or as a hedge against inflation risks. Fatih Birol, head of the International Energy Agency, said on Monday that ‌commercial oil inventories were depleting rapidly with only a few weeks worth left due ​to the Iran war and the closure of the Strait of Hormuz to ‌shipping.

Birol, who is participating ‌in the Group of Seven finance leaders meeting in Paris, told reporters that the release of strategic oil reserves had added 2.5 million barrels of oil per day to the ‌market, but said these reserves “are not endless”.

The onset of the spring planting and summer travel seasons in the northern hemisphere will drain inventories more quickly as demand for diesel, fertilizer, jet fuel and gasoline increases, Birol added. Asked about his comments in the G7 meeting, he said he described “a perception gap in the markets between the physical markets and the financial markets” for oil.

Birol said that before the US and Israel ​launched attacks on Iran at the end of February, there was a major ‌surplus in the oil markets, and commercial inventories were very high. But the situation has rapidly shifted due to the war.

He said commercial inventories would last “several weeks, but we should be aware of the fact that it is declining rapidly”.

Last week, the IEA said global oil supply will fall short of total demand this year as the Iran conflict wreaks ​havoc on Middle ‌East oil production, and inventories were being drained at an unprecedented pace. The ‌IEA had previously forecast a surplus this year.

Agencies